Cruise unit at MGM nears deal for funding

Metro-Goldwyn-Mayer Inc.'s long dormant United Artists movie unit -- which Cruise and his producing partner are attempting to resuscitate -- is close to raising about $500 million to finance a slate of movies over the next few years.

The money would pay the cost of making prints of the films and advertising them, as well as the cost of making them.

People close to the talks cautioned that the deal with expected lead investment bank Merrill Lynch wasn't final, and that terms were still being negotiated. They said an agreement could take an additional 10 days to two weeks to complete.

"We expect to announce full funding for UA shortly," MGM Chairman Harry Sloan said in an interview. He declined to elaborate.

Sloan struck a deal in November with Cruise and longtime associate Paula Wagner to try to return the UA label to its historical roots as an artist-driven production company in which actors, screenwriters, directors and producers are free to make movies outside the more restrictive studio system. The agreement came two months after Cruise and Wagner were cut loose by Paramount Pictures, where for more than a decade they enjoyed one of the most lucrative production deals in the business.

Sloan's plan to use a star of Cruise's stature to revive UA harked back to the studio's founding in 1919. Silent film icons Charlie Chaplin, Douglas Fairbanks, Mary Pickford and director D.W. Griffith formed the studio as a way to give artists creative freedom and ownership in their films.

If Sloan makes a deal to raise the money, UA would become the latest in a long line of Hollywood production companies and studios to tap Wall Street financing to help bankroll their annual output of movies.

This trend, accounting for billions of dollars in recent years, has occurred as stars and filmmakers are being squeezed by studios intent on slashing production and marketing costs. As a result, much of the financing from investment banks, private equity firms and hedge funds is going into the projects of Hollywood's most bankable talent, providing significant autonomy to those players.

In the UA deal, Merrill Lynch is expected to enlist other banks to supply some of the financing, a combination of equity and debt. In recent years, the investment bank has been active in backing slates of movies by other studios and independent producers including Paramount Pictures, Marvel Entertainment and Montecito Picture Co., headed by director Ivan Reitman and former Universal Pictures Chairman Tom Pollock.

Sloan has said that he wants UA to stand apart from MGM as an autonomous production unit, with its own film financing and bank credit lines. He believes that by building UA as a separate asset, MGM could someday spin it off to the public or sell the label to a bigger media company.

UA's business plan calls for MGM, which owns 65% of the unit -- the remainder is held by Cruise and Wagner -- to market and distribute at least four of the production firm's films a year.

Cruise and Wagner, who operate UA on the 11th floor of the MGM Tower in Century City, have the power to give the green light for production to any movie costing as much as $50 million without MGM's consent.

Its first production, "Lions for Lambs," could serve as a model for some of the studio's productions. Directed by Robert Redford, who also stars with Cruise and Meryl Streep, the film is being shot with funding from MGM.

A political drama set in Afghanistan and written by Matthew Michael Carnahan, "Lions for Lambs" tells three interconnected stories in which Cruise plays a congressman, Streep an investigative reporter and Redford an idealistic professor whose former student is a soldier wounded behind enemy lines.

Despite boasting top stars and an Oscar-winning director, the film's budget is $35 million -- significantly lower than what similar high-profile movies cost when made by a major studio.

Sources familiar with the film's economics said Cruise, Streep and Redford agreed to defer most of their usual upfront fees in exchange for a cut of the profit after MGM recoups its production and marketing costs. MGM is expected to release the movie in the U.S. in early November and handle its international sales.